Manufacturers see slow start to 2007

Greatest growth rates expected in energy, aerospace, Asia

By

LauraMandaro

SAN FRANCISCO (MarketWatch) -- The outlook for manufacturers' future business activity fell in December from the previous three months, while longer-term indicators like capital spending rose, pointing to a short-lived industrial slowdown this year, according a quarterly Manufacturers Alliance/MAPI report released Thursday.

The trade group compiles a composite index of future business activity based on a survey of 69 senior financial executives at the group's member companies. That index fell to 54 from 64 in September, its lowest level since March 2002, breaking 16 consecutive quarters with readings of 60 or more.

A reading over 50 indicates executives expect business activity to expand. The decline suggests they see expansion at a slower space.

The orders index, which compared new orders in the fourth quarter with those in the year-ago quarter, showed about 66% of manufacturers surveyed foresee an increase, down from 77% in September, said the group.

Also dragging down the overall index, readings on expected shipments, backlogs and profit margins fell, while inventories climbed. And the capacity-utilization index, which measures the percentage of companies running at 85% or more of their capacity, fell to 38.2% from 50.8%.

The survey "points to a less robust manufacturing sector than we've had in the last three years," said Manufacturers Alliance/MAPI economist Donald Norman. "Given what's happened in the housing market with the slowdown in sales and new construction, this is reverberating through other parts of the manufacturing sector."

However, gains in the export index and the investment, or capital spending, index signal growth for the year, said the group. The annual orders index slipped two points to 78% but remained at a high level, another sign of longer-term expansion, it said.

"We're not talking about manufacturing going into recession," Norman said.

Supporting manufacturers, the decline in the U.S. dollar and rebounding economies in Western Europe has helped exports.

Swift movers

In a special addition to the survey, executives named energy and aerospace as the fastest-growing markets. They projected markets related to automobiles, residential construction and heavy trucks would decline the most.

Indeed, good news from the aerospace markets kept flowing Thursday.

B/E Aerospace
BEAV
said it received orders from nine major airlines for outfitting cabin interiors on Boeing Co.'s
BA, -0.84%
new 787 Dreamliner aircraft. Combined with other contracts, the awards are worth more than $200 million, it said. B/E shares ended up 3.2% to $28.88.

Meanwhile, investment bank UBS
UBS, -1.93%
said a global survey of airlines with more than 100 planes revealed a still-strong market for aircraft, with over half of respondents saying they expected to start discussions to order aircraft in the next year.

Aluminum giant Alcoa Inc.
AA, -3.65%
also forecast continued growth in the aerospace market, while noting that production cutbacks among North American auto manufacturers would still weigh on demand for some of its products. See full story.

And at the Detroit auto show earlier this week, General Motors Corp.
GM, -2.10%
and Ford Motor Co.
F, -1.48%
tried to fan excitement for their new models amid declining U.S. sales. Cutbacks and plant closures could lead to a drop in U.S. production this year, said a Toyota Motor Corp.
TM, -0.84%
official. See related story.

In terms of geography, respondents to the Manufacturers Alliance survey said they project markets in Asia, including China, India, Singapore and Korea, as well as the South and Southwest regions of the U.S., will grow fastest. They pegged the U.S. Northeast, Midwest and Southeast as declining regions.

MAPI forecasts output in the manufacturing sector -- excluding computers, communication equipment and semiconductors -- to increase by 1.7% this year after expanding at an estimated 3.8% pace last year.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.